Category: Investing

As retail investors, one thing that is common to us is where to buy or to hold when a stock price declines rapidly. Since we recommend a falling knife catching trade yesterday (didn’t turn out good due to decline in earnings), I would highlight the criteria of a ‘safe trade’ catching a falling knife.

Intra-day Catching

First, let’s look at intra-day movements where the stock price had been subjected to intense selling pressure or merely consolidating at previous closing price.

Usually when one sees illustration A, it might seem like the sign is clear where there are plenty of buying quantity and buyers are coming up to support the price.

This market forces are almost the opposite of what the naked eye sees. To an untrained eye, illustration A is a buy while B is a sell. But buyers and sellers queuing are never sincere with their orders. Orders are subjected to change and in modern times, it gets worst with computerised algorithm making these queues.

But always remember that the volume rule of thumb is still in play.

Low volume price rise = Temporary price rise

Condition 1

If the stock would to go up without much volume in play, the response might be lackluster towards the price increase. Sellers might not queue their stock but immediately they might realize that price had gone up and the stock they are holding to (probably stuck for a long time) needs to be unloaded.

Condition 2

High volume drop = Permanent price drop

The availability volume on the buy side is key for an institutional investor. A person who wants to unload big amount of share looks upon volume to unload. Illustration A fits the criteria.

In fact if you look at illustration B, one couldn’t unload much under these circumstances unless fraudulent cases hit the company so bad that everyone is planning to leave the shareholding immediately.

This is why initiating a buy on illustration B with thin volumes could benefit you more than buying with mostly where all the buyers are in illustration A. A low volume drop ensures that a stock could rebound quick similarly to sell, buyers would begin to realize it hits their target price.

Another bonus rule of thumb to remember always would be…

Think like an Institutional Dealer

These guys like to do block trades as it is easier to compute on the back end. As institution holding large percentage of a company it is hard to find the same party on the buying end to take up your stock. When opportunity comes, it is now or never. That is why a stock may lag years but could move in a blink of an eye.

So Why Did we Call a Buy on MIKROMB Yesterday?

Did you realize that with the OBV indicator, the rise previously was much higher than before? When OBV rises and forms a higher high, it is a sign of accumulation. We know that people are accumulating this stock prior to the release of results expecting good earnings report.

If your accumulate the days since 1st November, you will find out similar data where accumulated net volume was up 11 million shares.

Probably the most important thing and you should never catch a falling knife unless you stock fits this criteria. Based on research, we know that MIKROMB is poised to continue its growth that it is showing so far.

If you buy at the wrong point this time around but knowing that the stock still has plenty of room to grow, the decline would open up opportunities to buy lower. That is by far the best thing that could happen.

Buying stocks with good fundamental still ensures that you win the long term game while suggestions in catching the falling knife provides an edge by possibility accumulating at low prices.

As much as I love to see oil going down from its current level, the technical analysis generated from the daily chart isn’t pointing it downwards. This meant more pain at the pumps in the future for us which paying more than the highest we’ve ever paid price of RM 2.70. The subsidized price was RM 2.70 back then but Brent was trading around $125 per barrel back then.

I guess merely a $65 per barrel oil would already see us paying RM2.70 challenging the historical high for all consumers in Malaysia. It is worrying the fact that consumer price index would rise at such a rapid rate when crude prices rise significantly. A backup plan to cushion a rapid rise in oil price is not yet in place which might end up creating a major shock later.

Moreover, oil is a commodity and commodity prices would rally within a huge cycle as production of the physical commodity tends to lag for a bit before it corrects itself meeting the right demand. Demand spikes signaled through reported GDP growth rates by major economies like China, US or the European Union would play a major role pushing oil prices higher this year.

The phenomenon of oil rising past $80 a barrel might have a low probability but the probability of oil dropping to $25 wasn’t there as well just 3 years ago!

Technical Analysis

Going back to technical analysis for Brent Crude, the Brent price is currently consolidating along $55 and somewhat formed a clear resistance at $57. We think that this is forming an ascending triangle where it soon might break the resistance of $57 and possible rallying to $60 before it takes a break again.

Coupling that with a low MACD nearing the upper midpoint of zero, it proves that it still has room to go higher towards the positive side. The consolidating Moving Averages are currently holding the prices tight at $56 creating a support and with proper strength exerted, it would climb higher soon.

Fundamental Analysis

Fundamentally, the market is in a bullish environment this year and the feel-good factor is there to stay. Grow is likely to come back when major economies like US starts pushing growth plans where this is also the reason why oil spiked earlier after Donald Trump came into office.

The global feel-good factor on the economy hasn’t been factored in yet since China is still registering lower GDP growth rates. But as soon as growth rates stabilizes for several quarters, we should see commodity markets start picking up for a second rally.

Conclusion

We can’t do much really unless you can long oil futures and I think derivatives such as warrants issued by investment banks could include Brent as an underlying for us to trade or hedge in the future.

In the meantime, stocks like SapuraKencana seems to be the primary response in KLCI when oil prices move. This meant that the only way for us to benefit from an oil price rise is buying SKPETRO. But this is fairly in accurate since SKPETRO isn’t an upstream oil and gas company. It relies on the spending done by major oil companies like Petronas to derive its revenue and earnings.

I believe that the risk of oil price going up is more dangerous than ever judging from the current state of the Malaysian economy…

According to Maybank, the supply of Malaysian Government Securities (MGS) might accumulate a deepening effect in the longer term since newly issued bonds are pushed further into the 15 years to 30 years category.

In a blink of an eye, we have reached the end of 2016 and completed 12 issues of OM Monthly. Looking at the pictures that made it to the front page of our publication, it brought along a lot of bearish sentiment starting from a major drop at the beginning of the year. Malaysia alone had its fair share of ups and downs with ringgit being the biggest killer our of KL Composite Index.

Later on, the negativity followed with Brexit that should never happen somehow happened! Luckily, some Pokemon came to cheer up everyone when all things are down…

With recovering oil prices, it seems that all is well for the oil sector till some of these offshore oil companies having trouble paying its bond holders. How many more of these small cap oil companies are in similar danger? That directly affects the performance of our local banks which had a tough time recovering.

Finally, the inevitable Trump voted as President of The United States closed the chapter of “things that can’t happen, happened”. The US markets see the biggest gain this year and it might roll-over to 2017.

In the mean time, markets going quiet again and let us rest and enjoy the Santa Clause rally that would normally start next Friday 23rd December!

What a wild ride for the markets where it likely sits in the top 3 for the biggest daily swing in history.

Looking at how the markets moved, mainly it was shocked by the fear brewing when the results turn out differently from expectation. The expectation was simple, Clinton = good, Trump = not!

Since the “not” became president, then it is logical for markets to go on a sell-off signalling a negative outlook all together. But investors have to prepare to buy since a figure-head change in the US might change the economy as a whole. This is why we posted yesterday urging investors to use Brexit’s market movement as a reference to what will happen if Trump wins.

Anyway, going back to the White House. For an approval to go through, the senate and house has to vote for it. The president has the veto power but if US wants to start deportation, the house has to vote for the law to go through. Evidently, markets begin to rebound sharply after it digest the fact that changing president might change policy but bad policies are unlikely to be passed.

Unlike George Bush’s plan to go to war with Iraq, America at that specific period of time are hurting after the 9-11 attacks. With brewing vengeance in the hearts of every American, the war started almost immediately with approval rating higher than ever.

In contrast to war versus the deportation and wall building ideas by Trump. It seems that it would face a hard time getting across the house. In his speech yesterday, he did not touch anything about immigration and walls. All he talked about is creating more jobs for the people. It seems though his craziness was kept away and his wildcard policies aren’t here to stay seemingly he isn’t the wildcard candidate any longer.

I guess business as usual for now with the likelihood of a Fed rate hike delaying once again since his policy pushes forward and creating growth that every American is looking for.

Foresee market to rise to end of this year with pressure on Janet Yellen whether to hike in December first and possibly lower the rate again when Trump comes into office officially. The tables have shifted and it we are now back looking at Fed’s action after we are done with politics.